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11-12-2024 (Workshop - Enterprise Funds)HUTCHINSON CITY COUNCIL REVIEW OF 2025 ENTERPRISE FUND BUDGETS MINUTES TUESDAY, NOVEMBER 12, 2024, AT 4:00 PM CITY CENTER — COUNCIL CHAMBERS 1. Call to Order Mayor Forcier called the workshop to order at 4:00 p.m. Members present included Chad Czmowski, Pat May, Tim Burley and Dave Sebesta. Others present were: Matt Jaunich, City Administrator and other city directors and managers. REVIEW OF 2025 ENTERPRISE FUND BUDGETS Matt Jaunich, City Administrator, spoke before the Council. Mr. Jaunich noted that a review of the following preliminary budgets will be held at today's workshop: Liquor Hutch, Creekside, Refuse/Garbage, Water/Wastewater/Storm Water. In addition, there will be a review of the local sales tax option and the enterprise fund transfers to the general fund. 2. Liquor Hutch Budget Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich reviewed the proposed budget for 2025 which sees a 2.5% increase in sales revenue over the 2025 forecasted sales. This is the second year of budgeting for THC products. Proposed expenses for 2025 have increased 1.3%. Capital projects include a new refrigeration system for an import beer cooler and new flooring in the wine area. Mr. Jaunich also provided a 10-year liquor fund forecast. Council Member May suggested perhaps looking into a satellite store in the future. Creekside Budget Mr. Jaunich explained that Creekside's 2025 budget includes a -7.8% decrease in revenue. Sales revenue for bagged product is budgeted at a slight decrease from 2024. Sales revenue for bulk product is budgeted at a 53.8% decrease from 2024 due to the inventory of bitcon being depleted. Grinding asphalt and concrete accumulated over the past year likely will occur in the Fall of 2025 with product to sell in 2026. Total expenses are budgeted at a decrease of -1.2%. Capital projects include site improvements for a finished bulk storage area, bagging line improvements and a used flatbed trailer. The transfer to the general fund is budgeted at $120,000. The ending cash balance for Creekside is budgeted at $2,080,224. Mr. Jaunich also provided a 10-year compost fund forecast. Refuse/Garbage Budget Mr. Jaunich noted that the refuse/garbage budget sees an increase in revenue of 7.8% from 2024. This includes a 5% rate increase for all refuse rates, which is the second of four proposed rate increases. Expenses for the refuse/garbage budget will see a decrease of -27.7% for 2025. There is a $55,000 transfer that goes out to the tree disease infestation/mitigation fund as well as a one- time $50,000 transfer to the Storm Water fund for a new leaf vacuum. Capital purchases include a new vehicle for staff. Mr. Jaunich provided an overview of the Spring/Fall white goods pick up related to costs to the City for the program. The proposed cost for 2025 is nearly $50,000. Mr. Jaunich also provided a 10-year refuse fund forecast. Water Fund Budget Mr. Jaunich explained that the Water Fund budget shows a -4.4% decrease in total revenue for 2025. The 2025 budget does not include an increase in water rates, but does include some adjustments to sales revenue based on the new rate structure that was effective 1/1/23. Water fund expenses are budgeted at a 4.4% increase. Projects included are water meter replacements, RO membrane replacement, RO skid valves replacement, gate & gate controls, half -ton work truck, plant optimization study, HVAC for meter room, Well 6 rehabilitation and recovery treatment and roadway infrastructure improvements. Transfer to the general fund will increase to $90,000 for 2025. The ending cash balance for the water fund budget is budgeted at $3,898,219. Mr. Jaunich provided a 10-year water fund forecast and noted that 2026 is the last year of the local sales tax. Wastewater Fund Budget Mr. Jaunich explained that the wastewater fund budget sees a 4.8% increase in revenues for 2025. The 2025 budget does not include any increase in sewer rates, but does include some adjustments to sales revenue based on the new rate structure that was effective 1/1/23. Total expenses have a budgeted increase of 18.9%. Projects included are digester aeration and mixation rehabilitation, belt press thickener 91 and 92 overhaul/replacement, sewer lining project, Building 990 boiler/controls replacement, Stoney Point lift station repairs/upgrades, Main lift station pump 91 & 92 VFD replacement, wastewater garage sheet metal replacement, HATS lift station improvements, replacement of solar field inverters and roadway infrastructure improvements. The wastewater fund budget has an ending cash balance budgeted at $5,165,463. Mr. Jaunich provided a 10-year wastewater fund forecast. Local Option Sales Tax Mr. Jaunich reviewed the local option sales tax program and the purpose of it which is dedicated solely to retiring the debt in water and sewer funds. Mr. Jaunich provided quick facts in reference to local option sales tax, which included: local sales tax on a $100 purchase amounts to $.050; local sales tax is applicable to the same retail purchases, subject to Minnesota sales tax; sale of vehicles by dealers are exempt and instead are subject to an excise fee of $20 per vehicle sold; local sales tax is applicable to any sale made within city limits as determined by the last four digits of your zip code; point of possession determines taxability; purchases item/service received/performed within city limits is subject to the local sales tax; purchased items/service is received/performed outside city limits is exempt from local sales tax; organizations exempt from paying state sales tax are also exempt from the local sales tax. Mr. Jaunich noted that the use tax process is applicable so if a purchase is taxable but the vendor did not charge sales tax, then use tax must be reported and paid to the State. Mr. Jaunich also reviewed other nearby cities with local option sales tax. Mr. Jaunich explained that early retirement of debt is an option if cash reserves are sufficient. While the main purpose of the tax is to retire existing debt, it also allows the City to build healthy cash reserves to help with annual street projects with water & sewer infrastructure improvements, improvements that may be needed in each facility, other projects that create efficiencies and stable water/sewer rates. Mr. Jaunich noted that during the past November (2022) elections, seven cities put forward 11 ballot questions for local sales tax and of those 11, 10 were approved by voters. The average margin of approval was 56.7% to 43.3%. Mr. Jaunich then reviewed the outstanding debt. Stormwater Fund Budget Mr. Jaunich explained that total revenue in the stormwater fund budget is seeing an increase of 12.6%. There is a planned rate increase of 8% over nine classifications. This increase is larger than the prior 3% annual increases due to increasing improvement and maintenance costs. The $50,000 transfer -in is from the refuse fund as its share of a new leaf vacuum that is budgeted within the Storm Water fund at a total cost of $136,000. Expenses are budgeted at an 8.3% increase. City's leaf vacuuming program is accounted for in this fund and street sweeping is also funded by this account. Projects included for 2025 include Michigan Street NE area drainage improvements, Southfork pond improvements, new leaf vacuum, airport drainage improvements and roadway infrastructure improvements. The ending cash balance in the stormwater fund is budgeted at $1,018,700 for 2025. Mr. Jaunich provided a 10-year stormwater fund forecast. Lastly, Mr. Jaunich provided an overview on enterprise fund transfers to the general fund. Mr. Jaunich noted that the liquor fund continues to do well. 2025 sees the second rate increase in a series of four in garbage rates. 2025 is the third year of a new rate structure for water and sewer users. There is a slight increase in the stormwater fees. Enterprise fund transfers into the general fund account for about 5.6% of general fund revenue. Cash balances continue to remain healthy. Capital needs continue to increase especially in the Creekside/Water/Sewer funds. In addition, regulatory agencies have and likely will impact future needs. Mr. Jaunich then asked Lynn Neumann, Director of Parks/Recreation/Community Education to provide an overview of pickleball availability and the fee structure. Ms. Neumann noted that the popularity of pickleball continues to grow and the PRCE department has been making significant efforts to respond to the needs of the community and the rising demand for this sport. Ms. Neumann explained that outdoor pickleball is available from April to October at the complex located at Park Elementary. There is no fee for players to utilize this outdoor facility. Indoor pickleball is offered from October to April at the Recreation Center which has six dedicated courts for indoor play. Ms. Neumann reviewed the days/hours for open pickleball. The fee structure for open pickleball is $5 per play. In addition, a punch pass is available which is $45/10 visits as well as a season pass of $200 from October -April. Much research and data were utilized to establish the fee structure. Ms. Neumann noted that a senior discount has been requested as well such as is offered at the aquatic center. Ms. Neumann reviewed the investments the PRCE department has made to the pickleball sport which includes new heavy-duty outdoor nets, repainting/restriping damaged courts, as well as miscellaneous items purchased. These investments have totaled almost $30,000. Ms. Neumann also noted that she has been researching a dedicated outdoor pickleball facility. A preliminary construction estimate has been proposed at approximately $525,000 which is based on post -tensioned concrete suitable for the soil conditions at the site. Due to potential contingencies and escalations, a budget figure of $600,000 has been recommended for planning purposes. 3. Adjournment Motion by May, second by Czmowski, to adjourn the workshop at 5:05p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator